Tesla has had a massive year, cementing itself as an automotive company and a clean energy provider in less than 12 months, and propelling its owner Elon Musk to top spot on the richest person on the planet list – an inch above Amazon’s Jeff Bezos before Mr Bezos reclaimed the crown in February.
On the back of all of these successes and more, Tesla stock was the single best-performing S&P 500 stock of 2020.
As a result, Tesla was also the stock that cost short-sellers an estimated US$40.1 billion. And according to data presented by Trading Platforms, this is the biggest loss from the short-selling position from any stock, with the next largest recorded loss from Apple at US$6.7 billion.
While short selling has long been a popular strategy for stock traders who are willing to take on the risk of capital loss, the tactic’s fame has soared in recent months when self-proclaimed Reddit stock market activists initiated what is known as a short squeeze on GameStop’s stock.
Essentially, short selling involves an investor borrowing shares of a company (usually from a broker dealer), before selling them back into the market. Short-sellers are betting that the borrowed stock they sold will drop in price and once it does, they snap them up for less money.
The short-seller then returns the stock to the lender and makes a profit by pocketing the difference between the sell price and buy price.
A short squeeze is a sudden increase in the price of a stock resulting in short-sellers buying back their stocks to cover their short positions, often resulting in billions of dollars lost for short-sellers.
According to the latest research, the number of profits generated from short-selling positions is quite low compared with the losses. In fact, in 2020, the 10 stocks that generated the most profit from the short position totalled an estimated US$9.75 billion.
Trading Platforms noted that as of January 2021, PubMatic Inc’s stock has the most short-sell positions by share of float shorted. Next on that list is American movie theatre franchise AMC Entertainment, with 66.06 per cent of their total float having been shorted.
